Huge reduction in LCs’ net short position in gold

July 12th, 2010

Most gold and silver investors are in precious metals because of macro (big picture) economic and financial circumstances in which the world now finds itself after seven decades of Keynesian economics and statist politics. These investors are content to take positions in the metals and hold them, while maybe adding to their positions as opportunities arise.

Still, there are other gold and silver investors who follow the markets closely, which usually means monitoring the activities of the large commercials (LCs), which are major players in the gold and silver markets, certainly on the COMEX where their positions have to be reported the Commodities Futures Trading Commission (CFTC).

Among the LCs, the bullion banks are the guys to watch. They trade for central banks, investment houses, mining companies, refineries, commercial users and other large investment firms when they decide to enter the markets. The thing to watch is the sizes of the LCs’ reported positions, which has been on the short side for more than a decade. The big two bullion banks are JPMorgan Chase and HSBC.

For the reporting week just ended, the Commitment of Traders report (COT) showed the largest one-week reduction in large commercial net short positioning for gold since August 12, 2008, says Gene Arensberg in his Got Gold Report. GGR notes that it’s the fifth largest one-week large commercials’ net short reduction in gold since 2003. In the past, large reductions in the LCs’ net positions have been harbingers of price moves to the upside. Not a guarantee, but it needs be remembered that the LCs are the big boys on the COMEX , and when they move they should not be ignored.

Seasonally, the metals have just entered their weak period, June through August/September. So, the boys backing off on their short positions is interesting. (In years past, the LCs have added to their short positions during the summer.) Additionally, gold is trading only 6% above its 200-day moving average, and it is below its 50-day moving average, which means gold may not be as vulnerable to a big decline this summer as it has in past years. So, the large reduction in the LCs’ net short position in gold may be really significant.

Arensberg’s Got Gold Report presently is free. Log on at www.gotgoldreport.com. In addition to analyses of the gold and silver markets, Arensberg also offers what he now calls his Vulture Bargain Hunting candidates: low-priced and high-risk gold mining stocks that he believes to be good speculations. Purchases of such companies should only be done by persons financially (and emotionally) capable of sustaining losses. Gene does good work, but he would be the first to tell you that speculative mining stocks are not the place for retirement funds.

GGR also offers COT Flashes, which are email updates of the COT reports. This is a convenient way to be appraised of what’s happening with LCs’ short positions in gold and in silver.

As noted, access to www.gotgoldreport.com presently is free. Plans are afoot for Gene’s work to be a subscription service. Now, though, it is free. Gold and silver investors who closely follow the markets may want to visit the site and sign up for the COT Flashes. However, after the site becomes a paid subscription, the COT Flashes will be part of the paid subscription.

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